Accounting is no longer just about balancing the books and filing taxes. Today, businesses need more than that. They need strategic advice on complex financial matters such as risk management, financial planning, and mergers and acquisitions.
Fortunately, automation and data analysis has transformed the industry, freeing up accountants to focus on high-level tasks.
According to a survey conducted by the American Institute of CPAs, 79% of firms agree that accounting and financial data analysis is essential to making informed business decisions. By utilizing the data provided by accountants, companies can identify areas for growth and optimize their operations, ultimately leading to increased profitability and success.
This is even more significant if seen in the light of the technological advances that are revolutionizing the market. With the arrival of AI and cloud-based software that can carry out the most repetitive accounting processes, accountants will have a greater and more important part in contributing the human component in a good decision.
In this blog, we’ll go around some of the new and improved roles accountants and accounting firms can offer and some examples of how levering from this changing market.
The New Expanded Role of Accountants
The accountant’s role has expanded to include providing insights into business performance, identifying areas of improvement, and making informed decisions. According to a survey by the American Institute of CPAs, 85% of firms believe that technology has increased their ability to provide high-value advisory services to clients.
In today's fast-paced business world, accounting firms that can offer a wider range of services are better positioned to meet the needs of their clients and stay ahead of the competition. They can provide guidance on financial matters that can help clients grow their businesses and improve their bottom lines. This can lead to increased revenue for the accounting firm, and more importantly, help clients achieve greater success.
By embracing technology and expanding their service offerings, accounting firms can become true partners to their clients and help them achieve their goals.
Accounting as a Tool: 4 Key Areas to Consider
Budgeting and Forecasting
Budgeting involves setting financial targets for an organization, while forecasting involves predicting future financial performance. Together, they provide a roadmap for financial decision-making and help organizations stay on track toward their goals. Accounting plays a critical role in both, by analyzing historical financial data to provide valuable insights into an organization's financial performance and trends.
On one hand, the budget can be used as a tool to guide decision-making, such as deciding on new investments or cost-cutting measures. For example, if the budget reveals that the organization is spending more than it is earning, management may need to consider reducing expenses or increasing revenue streams.
Forecasting, on the other hand, involves predicting future financial performance based on historical data and market trends. Accounting data can be used to make informed projections about future revenue and expenses, allowing organizations to anticipate potential challenges and opportunities.
For example, if an organization is forecasting a decrease in revenue in the upcoming year, it may need to adjust its budget and make strategic decisions to cut costs or increase revenue streams. Alternatively, if an organization is forecasting an increase in revenue, it may choose to invest in new projects or expand its operations.
Optimize Operations
Reliable financial accounting is crucial not just for external investors and lenders but also for the internal operations of businesses themselves. Accurate financial reporting allows companies to comply with legal and regulatory requirements, including tax reporting and financial statement disclosures. In addition, financial accounting also provides valuable information for optimizing day-to-day operations and identifying growth opportunities.
For example, financial accounting enables managers to create budgets and monitor expenses, allowing them to make informed decisions about resource allocation. It also helps them track efficiency and identify areas for improvement in their operations. By analyzing product performance and customer feedback, companies can refine their strategies and develop products that meet consumer needs. Furthermore, financial accounting aids in the development of short- and long-term plans, enabling companies to set realistic goals and measure progress towards them.
Investing Decisions
Fundamental analysis uses accounting data to evaluate the financial health and performance of a company. Financial statements such as the balance sheet, income statement, and cash flow statement are created and reported according to international standards set forth by the FASB and submitted to the SEC. This consistency in financial reporting provides reliable data for investors and analysts to make informed decisions about a company's valuation and credit worthiness.
Investors use financial accounting information to determine if a stock's price is fairly valued and to make a conscious decision, knowing the risks and opportunities of each investment. Lenders and creditors rely on financial statements to evaluate a company's ability to repay debt and manage financial risks.
All in all, financial accounting plays a crucial role in promoting a stable financial system and ensuring efficient allocation of capital.
Cost Accounting
Or the process of determining the cost of producing goods or services involves analyzing various inputs, such as labor, materials, and overhead, and allocating those costs to the goods or services produced.
Cost accounting is essential for businesses to accurately determine pricing strategies, growth, and profitability, and evaluate the feasibility of a new product or service. By estimating the costs associated with production, companies can determine whether it is financially viable and make informed decisions about investing in its production or changing the strategy. Moreover, cost accounting helps companies make decisions regarding the product mix. By analyzing the profitability of each product or service, the company can decide whether to continue producing a particular product or discontinue it.
Overall, cost accounting is a critical component of effective financial management for businesses of all sizes. By accurately determining the cost of production, companies can reduce costs, venture into a new product and improve profitability.
Why Is Financial Accounting Important In Business Decision Making?
In conclusion, finance and accounting are critical components of business decision-making. Financial analysis, budgeting and forecasting, investment analysis, and cost accounting are all tools used to make informed business decisions.
By leveraging accounting data, companies can make informed decisions that will help them stay competitive in today's fast-paced business environment. To make the most of finance and accounting, organizations should invest in the right resources, such as accounting software and trained personnel, to ensure accurate and timely financial information.
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Kevin Mitchell, CPA
Senior Manager and CPA with over 20 years of experience in accounting and financial services, specializing in risk management and regulatory compliance. Skilled in managing audits and leading teams to deliver exceptional services. Proud father of two.
References
How Does Financial Accounting Help Decision-Making? (2021, April 16). Investopedia. https://www.investopedia.com/ask/answers/041515/how-does-financial-accounting-help-decision-making.asp
